A more lucrative investment strategy for you in 2013

Investment StrategyAs we all get back into the swing of the new year, getting our New Year’s resolutions underway or better yet, sustained can present its challenges!  For many, their focus has been on the money and their investment strategy for 2013.

One area that caught my attention last weekend. While reading the weekend papers. Was the view that cash is not delivering.  The past 3 years saw a significant increase in the amount of money people have been saving.  Hardly surprising. As most people have scared to death by the media!

I always find it interesting to see the enthusiasm with which the presenters share the news that “Billions were wiped off the market overnight” yet we never hear from them the next day. When “Billions were added back to the market overnight” – balanced coverage. And I guess misery loves company!

So with the Reserve Bank cutting interest rates – something that is likely to continue into 2013. Cash is looking very unattractive from a real return perspective for any savvy investor.  Real returns are where you take inflation away from the return – so with the RBA rate at 3%, less tax. And then less an inflation rate. Which is quoted at 2% (but in reality is probably higher, if you ask anyone grocery shopping). The real return on cash for someone on a 30% tax rate, is pretty much zero, on a real return basis.  Not overly appealing. Based on any commercial benchmark.

So put your money in the bank or, alternatively, hold your money in bank shares, for example?

Just holding CBA, which will be coming up for a chunky, fully franked dividend next month, has to look appealing, especially for anyone managing their own self managed super. Given the franking credits alone!

But this is only scratching the surface. In terms of the potential returns which are available.  Let’s take a look at what one of our clients is doing right now. To generate an extra return and cash flow from their investments.

Actual History of Transactions for Santos (STO)*

Date Notes



6/09/2012 Buy 2100 STO Stock @ $11.55



13/09/2012 Sold 21 Oct 11.75 Calls @ $0.40



25/10/2012 Oct Options Expire


25/10/2012 Sold 21 Nov 11.50 Calls @ $0.43



29/11/2012 Nov Options Expire


16/01/2013 Sold Feb 11.50 Calls @ $0.41





Breakeven is currently at $10.31

Sold Calls have a current exercise price of $11.50

If exercised in Feb, gross profit is $1.19 or 10.30% gain over 5 months

The last close price for STO was $11.72 (17/01/2013). Which is a comparative gain of only 17c over the same time frame by solely owning the shares.

*All figures are traded prices before transaction costs

The “value-add”, in this case, has come from the covered call aspect of the investment decision.

The risk on the trade has been reduced (ie the stock holder’s break even has been reduced by more than a dollar) or alternatively, the holder has enjoyed positive monthly cash flow.  Either one of these (lower break even or cash flow) being a desirable outcome.

So what will your investment strategy for 2013 be?

Cash in the bank, effectively giving you a marginal – if any – real return, or are you ready to make 2013 a different year for you and your finances?

If you would like to find out more on how this strategy works and how you too could be enjoying a potentially more positive approach to your investing, check out our free online educational workshop


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